Graeme Samuel is wrong – there can and should be an NBN cost/benefit analysis: Bartholomeusz

Graeme Samuel argues in our latest KGB TV interview that it isn’t possible to conduct a cost-benefit analysis on the national broadband network because no-one would be able to assess the benefits of a high-speed broadband network even five or ten years out, let alone the 40 or 50-year lifespan envisaged for the NBN. That might be a reasonable perspective if broadband were a new and revolutionary concept, but it isn’t.

Samuel’s arguments against a cost-benefit analysis echo those of one of its key architects, the minister for broadband Stephen Conroy. The project is too visionary, the benefits too long term and unknowable and the social benefits immeasurable to be analysed conventionally. As with other NBN advocates, Samuel likes it to the Snowy Mountains scheme.

The reality is that other countries have had high-speed fibre broadband for more than a decade, so it is possible to use their experience and the applications that are currently available or in the pipeline as a guide to the demand for high-speed broadband and its likely usage to create a baseline for an analysis of its costs and benefits.

It is also the case that we already have a lot of broadband infrastructure – fibre, copper and wireless – much of which is to be forcibly displaced and decommissioned as the NBN is rolled out.

Many schools, universities, hospitals and businesses already have dedicated fibre – a 2008 government paper on school connectivity found that a majority of schools in metropolitan areas used fibre and 46 per cent of provincial schools but, despite having access to high-speed fibre, most schools used only modest downloads speeds of up to 4 Mbps.

It metropolitan areas there is competitive fibre backbone infrastructure, two HFC networks and the copper-based ADSL network, about 80 per cent of whose exchanges are ADSL2+ enabled. Despite the existing infrastructure, there is substantial under-utilised capacity. AAPT, as discussed previously, has 24 strands of fibre running along the east coast, but has activated only two of them because of the absence of demand – and written off $900 million of a $1 billion investment.

Where NBN supporters point to Australia’s relatively low broadband penetration rate relative to economic peers as justification for giving the NBN another looking at that, given the existing broadband capacity, would be to see that as a function of demand, or lack of it, rather than an issue of access to broadband.

Perhaps Australians aren’t prepared, or don’t see any need, to pay for higher speed broadband. The availability of even higher speeds at a higher cost – entry level prices for the NBN will be similar to prices today but consumers will have to pay significantly more for truly high-speed services – may not by itself increase demand, as the early evidence from the Tasmanian trial roll-out appears to demonstrate.

In Tasmania the state government is planning to legislate to force households to opt out if they don’t want to be connected to the NBN rather than, as was originally planned, asked to opt in.

The heart of the NBN is the connection of homes to the network. The government has yet to explain what households could do with that high-speed and expensive connectivity that would generate material national economic benefit.

Affluent households, of course, might be prepared to pay $200 or so a month in order to download multiple videos simultaneously, but should all taxpayers pay to provide them with that opportunity?

After committing to spending up to $43 billion to build the NBN the government has proposed to legislate to ensure that privately-funded and otherwise useful and generally viable broadband infrastructure is either decommissioned, acquired by NBN Co or prohibited from offering competitive telecommunications services in order to try to enhance the economics of the NBN and create a wholesale monopoly.

That represents a very real and very substantial cost, even with some compensation via either the $9 billion deal NBN Co has tentatively struck with Telstra or other purchases of infrastructure by NBN Co. A proper cost-benefit analysis, rather than the business case being developed by NBN Co, would take that into account when assessing the costs and benefits of the new network.

What is the quantum of net additional benefit the NBN creates above and beyond the existing infrastructure and reasonable expectations of how it might develop over the next few years?

Is duplicating, displacing and destroying existing sunk private capital with new public spending the most efficient use of national capital and can that be justified on the basis of the higher speeds and ubiquity of the NBN? It might be, but without a proper cost-benefit analysis we can’t come to any conclusions.

If, as Samuel says, a social benefit of the NBN is providing higher speed services to regional Australia, the new network – or more government subsidies – could have been focused on those areas, with the existing private sector operators allowed to continue to compete and respond to demand in the cities.

The timeframes involved are irrelevant. Making investments in response to demand rather than in hopeful anticipation of it (the “build it and they will come” philosophy) creates very valuable option value and reduces the risk of over-investment or misguided investment.

If we don’t know how the network will be used in 40 or 50 years’ time we shouldn’t be making an investment today predicated on demand in 40 or 50 year’s time. Advances in technology over the next few decades could justify the investment – or turn the network into an horrendously costly white elephant.

The Snowy Mountains scheme analogy has been thrown around loosely as an example of a visionary nation-building project built without a cost-benefit analysis. Malcolm Turnbull has argued forcefully that while there may not have been a formal cost-benefit analysis there were a number of reports, over a number of years, produced by a state and federal commission that investigated the financial viability of the project, as well as substantial public debate.

Today we are having the debate without any proper analysis of the measurable costs and benefits. Given the vast amounts of taxpayer funds being committed to the project, the forced redundancy of functioning infrastructure and the government’s claim (to keep NBN Co off-budget) that the project is commercially viable, that represents a major failure of good governance.

This article first appeared on Business Spectator.